BILD: Who should pay for infrastructure?

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New home buyers in the GTA are shouldering a disproportionate amount of costs related to infrastructure and services

Throughout the federal election campaign — and as I have written about in previous columns, the negative impacts of sky-high development charges (DCs) on housing supply and affordability in the GTA featured prominently.

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In our region, these fees, which are rolled into the cost of new homes and passed on to new home buyers, are not just the highest in Canada, but in North America.

As municipalities grow, there is no denying the need for more infrastructure, however, it is well past time for a meaningful discussion on who pays for what and to find alternative ways to fund growth-related costs.

Only so much can be borne by new home buyers and with the current DC rates in the GTA, they are shouldering a disproportionate amount.

The development charge system in Ontario has existed for more than 30 years. DCs are levied by municipalities on all types of development, including new homes, to offset the cost of roads, transit, emergency, water, sewer, and other services.

What began as a small charge in the late 1990s has ballooned to more than $125,000 on a new single-family home in many GTA municipalities. DCs, by design, serve a useful purpose in establishing housing-supportive infrastructure, but now too much cost is being shifted to the new home buyer, thereby undermining affordability, and distorting the type and supply of new housing coming to market.

To illustrate who pays for what and how much, I would like to compare what an average tax ratepayer contributed to on an annual basis to what the buyer of a new, single-family home in the City of Toronto paid for based on the 2024 budget and current DC rates.

Of note, once a new home is occupied, the new home buyer joins the ranks of the ratepayer and continues contributing through annual property taxes.

One caveat: this is not intended to single out the City of Toronto, as similar patterns can be found in municipalities across the GTA. The city is referenced here solely for its accessible and transparent information, which deserves praise.

Also of note is the City of Toronto’s recent decision to forgo annual indexing (increasing) of its DCs, which is also a measure that is appreciated. In the City of Toronto, based on the 2024 budget, property taxes on the average home were $3,904.

Since the property average includes both houses and apartments, to allow for a more complete apples to apples comparison, we will also blend the DC rates. In Toronto, a new, single-family home draws $137,846 in DCs, a two-bedroom apartment: $80,690, and a one-bedroom and bachelor: $52,676. This yields an average DC based on a blended product type of $90,404.

In terms of public transportation, a new home buyer (based on the blended product type) paid $2,875 toward the Spadina subway extension — regardless of the home’s proximity to the transit corridor and whether its owner used that line.

Additionally, the average home buyer paid another $34,877 for public transit. Conversely, the average ratepayer paid $542 toward transit. The $34,877 is equivalent to what a typical ratepayer would pay in 64 years through taxes; equivalent to 10,411 Toronto Transit Commission fares of $3.35 or equal to riding the TTC once a day for 28.5 years.

To support roads, water, and waste water infrastructure, an average new home in Toronto paid $33024 compared to $700 in capital investments and financing paid by the average ratepayer. The DC is the equivalent of 47 years of annual taxes paid in one shot.

The new home buyer contributed $13,287 toward parks and recreation while the ratepayer paid $324 for “other city operations,” which is broader than just parks and recreation. In one payment, the new home buyer paid what an existing ratepayer would pay in 41 years.

Only for police, emergency services and social services is there any semblance of balance. However, the new home buyer paid more in all instances, but the yearly multiples were much more restrained.

There must be some cost split and new home buyers should pay their fair share, but roads, water infrastructure, parks and recreation, and transit services benefit everyone. This is the case across all GTA municipalities. Laudably, some, like Vaughan and Mississauga, have recently reduced their DCs.

As housing starts have dwindled, we are well overdue for a frank discussion about who pays for what and the need to right-size DCs so they do not undermine the region’s housing affordability and supply anymore than they already have.

Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, visit www.bildgta.ca.